Will I have to pay IHT on money gifted to mother from husband then on to me?

Roly_poly123

I've been trying to find an answer to this for a while to no avail.

The situation is this, my father has decided to pass me and my sister most of his estate while he is still alive. He is in poor health and I guess is thinking about the future having just lost his partner.

He has granted me and my sister power of attorney and passed us a number of folders containing his estate. He has bank accounts, ISA's, shares etc. and told us he has gifted it to us and to divide it up.

The estate money he has passed to us is around £400,000. My sister and I will have £150,000 each and he is passing £100,000 to our mother. My father and mother are separated but still married.

The question is this, as I understand it anything passed to my mother would not count towards IHT. what happens if my mother then decides to gift any of the money to me or my sister in the future? I understand the 7 year rule for IHT but how does it work if some of my father's estate goes to his wife and then back to us in the future? 

I hope this makes sense and would appreciate any help.

Many thanks.

Keep_pedalling

Based on the numbers no, but he is being very foolish doing this unless he has other significant assets such as his own home, this will be classed as deliberate deprivation of assets if he needs  care costs. 

Savvy_Sue

Plus, unless he has actually gifted it to you (rather than just said "this is what I want to do"), then you can't, as Attorneys, divvy it up as he has requested, because that is not in his best interests. 

Does he have a will which reflects what he wants to happen? That would be more important to sort out, IMO. 

Roly_poly123

Thank you for the replies, in answer and to add a bit more info, he has kept enough money back to look after himself. His now deceased partner had a generous pension which he now gets along with his state pension and his private pension. He also has savings so should he need care he has the means to cover that.

I'm curious to understand what you mean by 'actually'. He basically passed us a pile of folders containing his accounts and said this is yours, I want to give it to you now, I've granted you both power of attorney so you can split it up.

He has written a will and given us a copy which reflects his wishes. I'm struggling with the concept that he can't gift us this money now. Surely he can pass this over to us whenever he wants or am I missing something? Many thanks.

Keep_pedalling

There is nothing preventing anyone giving away any amount of money they wish but that can have unfortunate consequences like deprivation of assets or creating an unnecessary IHT liability. You opening post suggesting he was giving everything away which would be crazy, you also said he is in poor health so he is a likely candidate for future care needs.

If he is unlikely to survive another 7 years then there is little advantage in gifting for the purpose of IHT mitigation, but if the joint new worth of your parents is in excess of £1M then making gifts through your mother makes more sense. 

I don’t really understand why he is just asking you to do this yourselves rather him doing as it sounds like he still has the mental capacity to do it.

In order to provide any sensible advice more detail is required. What is your father’s total net worth? Does he own his own house. Same info for your mother.
Does your fathers will leave everything to your mum? 

Linton

To answer your question...

If father gves mother some money and then mother gives money to you that is simply a gift from mother to you and could count against her estate's IHT.  Mother's gift has no connection to father's estate.

On a different matter, it would be prudent if father properly documented his instruction to his PoAs to give the money to themselves.  It would protect against anyone accusing the PoAs of dishonestly helping themselves to father's money.

As long as father is mentally capable then he can ask his attorneys to make gifts to themselves.  If he were not then it would be dodgy.

km1500

your father can give away 325k of assets to you and your sister without incurring inheritance tax. 

a married couple can give away 650k without paying inheritance tax so on the face of it looks like even if in the fullness of time your mother passes on the 100k you would not be due to pay any inheritance tax

what you don't mention is if your father or mother own any property because if they leave that to you both then you get an extra 175k each person i.e 350k so the total will be 1 million.

For this to happen a property needs to be left to you not just cash etc

aside from inheritance tax the only thing you need to be slightly wary of is if you think your father or indeed your mother may need a care home - because if you apply to the local authority for funding then they may start inquiring into why he gave away this money

Keep_pedalling

km1500 said:

your father can give away 325k of assets to you and your sister without incurring inheritance tax. 

Although true, if his will also leaves part of his estate to his children in his will then IHT would be payable which is why I suggested the gift might be better from their mother assuming she is in better health than her husband.

a married couple can give away 650k without paying inheritance tax so on the face of it looks like even if in the fullness of time your mother passes on the 100k you would not be due to pay any inheritance tax

what you don't mention is if your father or mother own any property because if they leave that to you both then you get an extra 175k each person i.e 350k so the total will be 1 million.

For this to happen a property needs to be left to you not just cash etc

That is not quite correct, the property does not need to be mentioned in the will at all and it may not even be owned at the time of death if the downsizing rules can be applied.

Roly_poly123

Thank you so much for the replies to this.

There are no houses involved with mum or dad. They have been separated for a number of years but decided to remain married. 

I should probably clarify again that dad has still got three pensions and a modest amount of savings. My sister and I obviously wouldn't leave him without the means to look after himself. We envisage this would cover any care he may need in the future.

The reason he has decided to gift the money now is fairly straight forward. He has decided he just won't need it and would like us to make use of it now rather than wait until he has passed away. He has Parkinson's and is quite frail, on top of that he really isn't pc literate. He just didn't want the stress of sorting it all out himself and so decided to leave it to us to do.

I think Linton has mostly answered the question. If part was gifted to my mum would that be excluded from any future IHT calculations. The only other thing I was curious about was if there is any time limit on how long my mother would have to keep it before she could pass it on or if it would immediately become part of her estate.

thegreenone

An aside - who has your Dad assigned his Private pension to, in his wishes.  If it his partner,  this will need to be changed either to your Mum or you both and ASAP. 

otb666

My mother is frail and has Parkinson's literally a shell with no capacities and is in her 90s has been in care for 5 years care costs  £1400 a week thus so far costs £364000 All her close relatives have lived over 100 years . So could be well over one million.  Luckily has this money and its certainly nice knowing she is all cared for with her own money.
Also he should avoid making big decisions if he has just lost his partner.